Read the Whole Thing

by Stephen Spruiell

I’m going to assume that Matt Yglesias and Mike Konczal stopped reading today’s editorial at paragraph two. They seemed to have missed the part where the editorial never asserted that the recession Obama inherited was identical to the one Reagan inherited, nor that Obama should have adopted the same solutions that worked for Reagan. The comparison was only that in each case, a painful structural adjustment was necessary: One man had the fortitude to stick it out, and the other took the path of least resistance. Our examples of Obama pain-avoidance have nothing to do with interest rates. They are:

1. He gave the zombie banks’ bondholders a free ride. (I actually thought Yglesias agreed with this.)

2. He intervened to prop up housing prices instead of letting them fall.

3. He added substantially to a very large public debt overhang, to shield the public sector from having to make the same sacrifices as everyone else, and to make down-payments on a pre-existing Democratic spending wish list, without contributing much to the recovery in any long-term or lasting way.

4. He decided that it was more important to please his base by going for big health-care and energy bills than to create a stable and predictable policy environment for businesses.

These complaints don’t necessarily make sense if you lean toward the Keynesian view that insufficient aggregate demand explains most of what is wrong with the economy and that a bigger stimulus (or more stimulus now) is all we really need. They make more sense if you lean toward the view that the credit bubbles of 2002-2008 built up a lot of structural distortions in the economy that require painful adjustments — high unemployment in sectors that were overbuilt, the recognition of bad debts, large losses in the financial sector, bankruptcies, etc. — and they make perfect sense if you also think that Obama has gone to great lengths to (extend and) pretend those corrections won’t be necessary. The Keynesian vs. Austrian view of what ails the economy is the debate we should be having. Yglesias and Konczal are trying to argue with a point we didn’t make.